Where do you go for help when you're in debt and live in Texas? In this article, you will read about your debt relief options and learn some of the rules and regulations that apply in Texas.
If you need debt relief options to help with credit card debt, there are many choices in Texas. Credit counseling agencies (nonprofit and for-profit), banks, credit unions, online lenders and debt settlement companies work with consumers to pay off credit card debt.
They all offer very different approaches to solve your problem. The five debt-relief programs they offer include debt management programs, debt consolidation loans, debt settlement, nonprofit debt settlement and bankruptcy.
Each program has plusses and minuses to consider.
Here is an outline for each program and why it might work for you:
Debt management programs reduce the interest rate on credit card debt to somewhere around 8%. The average interest rate on credit cards is 16.7% (in March of 2022), but if you miss a payment, the rate can jump to 20%-25%. Miss two payments and the rate can go from 25%-30%.
So, if you owe $5,000 on credit cards and reduce their interest rate from 25% to 8%, your monthly payment drops from drops from $105 a month to $33 a month. That’s $72 a month that you can use to pay your debt off faster. Counselors at nonprofit credit counseling agencies factor your income and expenses and calculate a monthly payment to eliminate your credit card debt.
Another plus: Your credit score is not a factor for enrolling. You can be debt-free in 3-5 years if you make on-time monthly payments, and you may even pay the debt off early. If you don’t like the program, you can quit, though that means the credit card company will take back the interest rate concession and you’re back to paying 20%-30%.
» Where to find it? – Debt management plans are offered by nonprofit credit counseling agencies, who work with creditors to reduce interest rates to a manageable level. The program covers unsecured debts, like credit cards, but not secured debts, like houses or cars.
» Is it right for you? – Anyone with high-interest credit card debt would be helped by this program. It lowers interest rates and it chips away at the amount owed until, in 3-5 years, you are free from the debt.
A debt consolidation loan is one big loan used to pay off all debt for multiple cards. You make one monthly payment to the bank/credit union instead of 3-4 credit card payments. The interest rate depends on your credit score and whether you are willing to put up collateral, like your home or car, to back the loan.
Typically, people put up collateral and pay around 10%-12% for a debt consolidation loan, compared to the 25% interest rate they likely are paying to credit card companies. This is a single payment to a single entity, at a lower interest rate that saves money and simplifies payments. It’s a big savings, which makes this look like a really good deal. And it can be.
However, you took out a big loan to pay off a bunch of small loans and still owe the same amount. If you don’t stop using your credit cards, you must pay the consolidation loan, plus whatever you’re buying on credit cards.
And that’s if you qualify (poor credit score could eliminate you) in the first place.
» Where to find it? – Banks, credit unions and online lenders offer debt consolidation loans. It’s worth your time to shop around for the lowest interest rate and repayment terms.
» Is it right for you? – It’s a wise option for anyone with a good credit score (670 or higher) and the discipline to stop using credit cards. Generally, consolidation loans offer a lower interest rate than the onerous and burdensome rates charged by credit card companies.
Debt settlement allows a consumer to pay off a debt for less than what is owed. The payment usually is made in a lump-sum and comes after 2-3 years of saving money in an escrow account and negotiating with one or more creditors to get them to agree to this. As good as this sounds, it can be a long process, and it damages your credit report for seven years. Also, the IRS considers forgiven debt of more than $600 as income that must be declared on your tax return.
It works like this: You or a company you hire must negotiate a payment amount agreeable to both parties. You stop sending even minimum payments to the card companies, which means late fee penalties and interest are added to what’s owed. Instead, you pay into an escrow account. When that account gets big enough, the company doing the negotiating negotiates an agreement with the creditors. Be aware: Card companies do not like this form of debt relief and some refuse to deal with debt settlement companies.
While debt settlement companies like to brag that they can cut your credit card debt in half, that doesn’t account for their fees and late payment penalties and interest on their accounts.
The benefit to the credit card company is that it receives some money, as opposed to little or nothing if you default.
» Where to find it? – For-profit debt settlement companies specialize in this service. They negotiate on your behalf with the credit card companies, who must agree to the plan before it goes forward. The process usually takes 2-3 years and card companies are under no obligation to accept settlement offers.
» Is it right for you? – Anyone with large amounts of debt who is desperate for a solution so they don’t have to declare bankruptcy should look at this option. If you have $50,000 in credit card debt – two million American consumers do – getting it knocked down to $25,000 sounds pretty good.
Nonprofit debt settlement was created in 2021 by nonprofit credit counseling agencies and the lure is the same – the consumer will pay only 50%-60% of what they owe. How that happens is completely different from for-profit debt settlement companies.
Instead of long negotiations, the lenders agree to the terms upfront. Rules that must be followed include the consumer hasn’t made a credit card payment in 180 days; must make fixed payments for 36 months – you can pay off early, but there are no extensions – and all payments must be made on time or they cancel the program.
The benefit to the consumer is that there is 0% interest charged during the 36-month repayment time.
» Where to find it? – The program started in 2021, so only a few nonprofit credit counseling agencies offer the program and only a few credit card companies and banks participate. Nonprofit credit counseling agencies are certified and accredited by the National Foundation for Credit Counseling. Federal law requires the agency act in the client’s best interest. Search online for “nonprofit debt settlement” to find an agency that will provide this program.
» Is it right for you? – This is for consumers who face overwhelming credit card bills but lack the income to pay them off. You won’t have to pay any interest on the debt, as long as you keep up with the 36 monthly payments it takes to get through the program.
Bankruptcy is painful, but for some it might be the best solution available, giving you a second chance to get your finances in order, and it can be done without losing many of your possessions, including your home.
There are two major types of bankruptcy, Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, non-exempt assets are sold by a trustee appointed by the court and the money is used to pay off debts. Key assets are exempt from this process, notably your home, car, personal items needed for work, pensions and Social Security.
In Chapter 13 bankruptcy, you keep your assets in exchange for making regular payments to the trustee to pay down debt.
The consequences for bankruptcy are significant. Your credit score may drop 100-200 points. Bankruptcy stays on your credit report for 7-10 years, making it more difficult to get credit for a home or car loan in the future.
» Where to find it? – Bankruptcy attorneys in your area are a must to get through this process successfully He or she knows the ins and outs of the system and can protect you and your family as much as possible in the process.
» Is it right for you? – Look at your income and expenses. If you can’t figure how to pay off all your debts in five years, bankruptcy might be the best debt-relief option available. It’s always best to try nonprofit counseling, settlement or consolidation before bankruptcy, but if those are not for you, bankruptcy is the final resort.
The statute of limitations of debt in Texas is four years, which means that’s how much time a debt collector has to file a lawsuit to recover the debt. Debt buyers must provide written notice if they are taking action past the limitations period. They may continue to call, but they can’t actually take you to court after four years.
Texas debt collection laws changed in 2019 that ensure that making a payment will not restart the statute of limitations clock. Federal Consumer Financial Protection Bureau rules also prevent debt collectors from threatening to sue over time-barred debts. The Texas Constitution prohibits wage garnishment except for child support, spousal support, student loans or unpaid taxes. However, your bank account can be frozen and wages deposited there can be seized if a debt collector has won the lawsuit against you and had an order issued by the court.
They must love their cars (or trucks) in Texas, which is ranked only behind Wyoming for average auto loan debt, but the Lone Star State is doing a good job avoiding bankruptcy court.